Forex News and Events:
EURUSD has now fallen over 4.5% in the 2 weeks since the surprise non-farm payrolls, and the exit of USD short positions in the market now looks less like a temporary correction and more like a trend reversal with every passing day. Despite still being in the sweet spot of low US rates against a backdrop of improving global data, the truth is that US data has just been a little bit too good lately. Fed policy makers remain understandably cautious about the outlook for 2010, which is why even subtle alterations to the wording of their statement have significant impacts on market psychology. The acknowledgement yesterday that the decline in the labour market is “abating”, gives markets the first hints that the US is getting back on track sooner than anticipated, and the USD will not settle for its role as carry trade funding currency for long. EURUSD’s collapse through 1.4480 support overnight leaves very little technical support expected until 1.4180 levels, and given the ongoing negative news about Greece’s credit rating and the fragile state of Austria banking system, the fundamental outlook offers little consolation for EURUSD bulls. Another currency suffering today is GBP, after this morning’s reading of UK Retail Sales was starkly lower than consensus forecasts, printing -0.3% MoM, 3.1% YoY (expected: 0.5% MoM, 3.7% YoY). GBPUSD had been trading around 1.6230 levels ahead of the release, but 1.6200 support rapidly gave way to a slump down to 1.6111 lows, and a close below 1.6150 leaves us open now to a revisit of 1.6000. The US economic releases this afternoon are by no means first tier data, with only Leading Indicators and Philadelphia Fed expected; however given the pervading mood of the market to unwind USD shorts, we would expect upside surprises to have a disproportionately large effect on USD pairs.
Today's Key Issues (time in GMT):
12:00 CAD CPI, % m/m (y/y) Nov exp: 0.3 (0.8) prev: -0.1 (0.1)
15:00 USD Philadelphia Fed mfg index Dec exp: 16.0 prev: 16.7
15:00 USD Leading indicators, % m/m Nov exp: 0.7 prev: 0.3
The Risk Today:
EurUsd After failing to climb back above 1.4600 (hitting 1.4590) we saw short term wave 4 come to an end before wave 5 has taken the pair to the major support level at 1.4360. This level is also the lower range of the new downtrend so if short sellers are looking to book some profits pre- weekend / Christmas, then this is a highly likely place for them to do it before undergoing a choppy sideways action higher. IF we drop out of the bottom of the channel then the longer term target of EURUSD 1.3500 will be in play, but for now we advise cutting some EURUSD shorts and waiting for the re-entry, ideally at 1.4684. The prior support at 1.4515 has now become resistance so expect it provide a hurdle in the meantime.
GbpUsd GBPUSD finally looks to have broken out of its one month bearish channel, as Retail Sales data quickly prompted a collapse through 1.6200 levels to breach the lower end of the channel at 1.6166. A close below 1.6166 opens up a move towards 1.6000-1.6040 area, and for now, good supply at 1.6200 should cap any rallies.
UsdJpy The pair has continued on its 3-week uptrend since bottoming at 84.81 in 27th Nov, topping at 90.26 in early Asian trading today. Long positions are still favored with bids coming in at 89.50, and resistance at 90.86 (coinciding with 9 month downtrend line) plus resistance at 91.80.
UsdChf On Tuesday we said that we were probably still in wave 3 of 5 and that 1.0360 would attract longs in the short term. That scenario has played out perfectly, confirming the wave counts, and tells us that we are now likely in wave 5 of 5 and accompanied by some increasingly divergent momentum indicators. Wave 5’s can be a great place to make some big bucks and fast – our October gold trade from 1006 to 1188 is a typical example – but in this case the divergences are a concern for me and I would now wait for a meaningful correction of this entire 5 wave move.
Resistance and Support: